Michael Barry - Chairman, Chief Executive Officer, and President Mary Hall – Chief Financial Officer Robert Traub – General Counsel.

Curt Siegmeyer – KeyBanc Peter Warendorf – Wunderlich Securities Jon Tanwanteng – CJS Securities Garo Norian – Palisade Capital Management.

Greetings, and welcome to the Quaker Chemical Corporation Third Quarter 2016 Results Conference call. At this time, all lines are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Michael Barry, Chairman, Chief Executive Officer, and President for Quaker Chemical Corporation. Thank you, Mr. Barry. You may begin..

Thank you. Good morning, everyone. Joining me today are Mary Hall, our CFO; and Robert Traub, our General Counsel. After my comments, Mary will provide the details around the financials and then we will address any questions that you may have. We also have slides for our conference call.

You can find them in the Investor Relations section of our Web site at www.quakerchem.com. I'll start it off now with some remarks about the third quarter. I'm pleased we have delivered another quarter of solid earnings and strong cash flow, despite a variety of market challenges and foreign exchange headwinds.

Let me now talk about each of these in greater detail to give you a better perspective in which to evaluate our third quarter results. Foreign exchange rates negatively impacted sales by 2% and earnings by 3%.

This marks over two-and-a-half years of consecutive quarters where foreign exchange has negatively impacted our results compared to the prior year period. Global steel production is one of the major indicators for our base market growth.

It was nearly 2% global steel production growth versus the third quarter of last year, with all major geographical areas showing declines, except for Asia Pacific. However, we are more tied to cold rolled steel. This subset of the global steel market continues to be sluggish with no growth.

I'll now make comments on the quarter sales, and I'll do so in each of our respective regions. In our business -- biggest segment, North America, we showed a sales decline of 4% as we saw negative impact from foreign exchange and a 2% volume decline. This decrease in volume is relatively consistent with the decline in the North America end markets.

However, North America also was negatively impacted by the timing of some product shipments in the quarter, which tended to mask our positive share gains. Our European or EMEA region showed 8% increase in sales. This increase was primarily due to the Verkol acquisition, although we did have 1% organic growth volume as well.

For the first time in several years, South America showed good revenue growth of 20% as Brazil has begun to show signs of having hit the bottom and beginning a slow recovery, with about half the increase coming from volume growth and half due to improved product pricing.

In our Asia Pacific region, sales were relatively flat, but we did see good volume growth of 7%, offset by exchange rates and lower product pricing. Despite the challenges we faced, we were able to grow our adjusted EBITDA by 6%.

In a nutshell, we were able to do this on the benefits from our restructuring program, our recent acquisitions, and taking share on the marketplace. One way you can see the share gain is to look at our overall product volumes, while excluding acquisitions. When you do this, our base product volumes are up approximately 2%.

We believe our overall markets grew somewhat less than this, especially considering our largest market of cold rolled steel was relatively flat.

Also when you take into account the atypical timing of certain North America's shipments that I mentioned earlier, we believe our share gains continued in our core market at existent level we have seen in the past. We believe these share gains are due to our commitment to our customer intimacy model.

Specifically, where we put our customer needs first as our top priority providing them with strong service and business solutions, I believe this approach continues to differentiate us in the marketplace.

In addition, we continue to invest in many other initiatives in our existing business lines in each of our regions that will extend our competitive advantage and help us to gain further share, including growing our recently acquired technologies around the globe.

As I mentioned in the past using the baseball analogy, I see each of these initiatives as singles, and our goal is to hit many singles to produce multiple runs, and thereby show continuous growth, even in tough market conditions. Over the next quarter, we expect our sales will continue to be impacted by a strong dollar.

In the case of raw material costs, we expect some to increase, but the timing and the impact of gross margins is really not an exact size. However, to give you more direction, we expect our gross margins in the fourth quarter to be at a similar level as the third quarter, and certainly close to the 37% than 36%.

I also want to point out that we are experiencing the benefits to our SG&A that we projected from our previously announced restructuring program, and they have more than offset modest decline in GM percentage.

For example, the lower GM percentage decrease profit by approximately $1 million from last quarter, but the SG&A savings achieved was somewhat more than this. This lead to our overall adjusted EBITDA margin climbing to nearly 15%, up from 14% to 20.2% for the same period last year.

Overall, we expect the third quarter savings from the restructuring program to be comparable to the fourth quarter. So while there is a great deal happening around us, the bottom line is I continue to be confident in our future.

We believe that we can continue to grow our annual earnings and generate strong cash flow, despite various market challenges. We will do this by executing our business strategies which we project will lead to continued share gains in the marketplace.

Also, we continue to leverage our recent acquisitions by selling our newly acquired technologies on a global basis. And finally, we will continue to work on new acquisition opportunities.

The combination of all these growth vehicles gives us confidence that 2016 and beyond will be good for Quaker, and our outlook remains unchanged as we expect to grow both our top and bottom lines for both the fourth quarter and full year 2016, despite continued economic challenges and further foreign exchange headwinds.

In closing, I want to thank all of our associates whose dedication and expertise helps to create value for our customers and shareholders and differentiate Quaker in the marketplace. People are everything in our business and by far our most valuable asset. And I'm very happy with the Quaker team we have in place throughout the world.

And now, I'll turn it over to Mary Hall, our CFO so that she can provide you with more details behind our financials. Once Mary has completed her comments on the financials for the quarter, we will address any questions that you may have.

Mary?.

Thanks, Mike, and good morning all.

Before I start, please note that Quaker provides certain non-GAAP information including non-GAAP earnings per diluted share and adjusted EBITDA in an effort to provide shareholders with feasibility of the Quaker's performance, excluding certain items which we believe do not reflect our core operations, including earnings related to Primex, our investment in a captive insurance company.

Reconciliations are provided in charts 10, 11, and 12 of these investor slides and they are also in yesterday's earnings release and our Form 10-Q also filed yesterday. In addition, please do not to place undue reliance on any forward-looking statements.

Quaker delivered another strong quarter, despite the continuing headwinds from foreign exchange, an anemic economic environment and a higher effective tax rate Q3 of '16 versus Q3 of '15. We continue to benefit from -- and from cross selling our more recently acquired products and technology while maintaining strong margins.

As a result, Quaker continues to deliver good adjusted earnings and adjusted EBITDA growth and strong cash flow. Please refer to Chart four and five as I walk through some detail. Reported earnings per share of a $1.21 for Q3 of '16 is up 12% versus the $1.08 in Q3 of'15 with non-GAAP earnings per share of $1.25 up 5% of our Q3 of '16.

Note that foreign exchange had a negative impact this quarter of about $0.04 per share and a higher effective tax rate had negative impact of approximately $0.06 per share. Adjusted EBITDA also showed good growth up 6% to a trailing 12 months of $106.3 million with an adjusted EBITDA margin of nearly 15%.

So now we circle back to the top of the P&L and share some detail there. Net sales were up about 1% quarter-over-quarter as 4% volume growth would partially offset by a negative FX impacted 2% and price mix adjustments of about 1%.

Foreign exchange headwinds have been a recurring challenge for us this year and this quarter we were negatively impacted again by depreciation primarily of the Chinese RMB and the Mexican Peso. As we indicated in our last call, we are beginning to see our growth margin contracted with the realignment of our prices and raw material costs.

Our gross margin declined a 37.2% versus 37.7% Q3 of last year and 38.1% last quarter. However, also as expected and as we discussed in our last call, our SG&A decreased to more than offset this declining gross margin.

As we saw benefits from our global restructuring program and continued cost discipline and lower cost associated with transaction-related expenses resulting in increased operating income, up about 14% and improved operating margins of 11.2%.

The low operating income, the significant delta quarter-over-quarter is the effective tax rate which I mentioned earlier. Our Q3 effective tax rate of 28.3% versus 24.4% last year is a bit better than the guidance we gave you last quarter as certain tax adjustments to previous filings and reserves moved in our favor.

For Q4 and full year, we continue to expect recertification of a concessionary tax rates in the non-US subsidiary which will reduce our full year effective tax rate to 28%-30%. Despite the inflated tax rates our strong operating performance carried through to the bottom line with those reported and non-GAAP earnings showing good growth.

The balance sheet and cash flow continued to be strong and we have improved our net cash position to about $23 million.

We accomplished this while increasing our current year dividend 8% with the last four quarters dividend payments approximately approximating $17.3 million repurchasing approximately a 171,000 shares for about $13.2 million and that since the Board approved our repurchase plan last May -- May of last year and using about $26 million to acquire Verkol in the prior year.

We continue to believe that this balanced approach to capital allocation helps to create long term sustainable value for our shareholders. And now if you'll turn your attention to Chart six through nine, I've already talked in some detail about each of these metrics the metrics in these charts. So let me just focus on the trends.

As you can see in chart six, volumes show a nice positive trend. On Chart seven, our gross margins demonstrate consistency as well as some modest softening in line with expectations. Our adjusted EBITDA on chart 8, continues to show good positive growth in both dollars and margin percent.

And the balance sheet and cash metrics on Chart nine reflect our consistent ability to fund current growth and position ourselves for future growth. An overarching theme I hope you take away from the metrics is that Quaker has a strong track record of delivering steady consistent growth over time and through a variety of economic conditions.

Last quarter I showed some expectations including slow and market growth and foreign exchange headwinds of 3% to 6% for the full year, which we expected to offset with market share gains leveraging a past acquisitions and cost savings of about $3 million in the second half of the year. Q3 performance was largely in line with these expectations.

For Q4 we expect much of the same with the additional bit of color that Mike shared that we expect our Q4 gross margins to be similar to Q3. Most importantly we continued to expect growth in top and bottom lines and continued growth in adjust EBITDA. My thanks to all of you for your interest in Quaker, and I'll turn it back to you Mike..

Thank you, Mary. At this stage, we would like to address any questions from the participants on the conference call..

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Curt Siegmeyer of KeyBanc Capital Markets. Please proceed with your question..

Good morning everyone. Hey, nice quarter. Just a couple, one on pricing, it is holding up pretty well, considering the environment and just where raw materials have trended.

How should we think about pricing going forward? Should we expect it to remain at similar levels, maybe flat to down slightly, or is there any type of lag in your raw materials that maybe we should look for in the coming quarters?.

It's hard to look past more than one quarter in our business relative to this and that's why we wanted to kind of give guidance that we think the third quarter and the fourth quarter will be at similar type levels. And really it will depend upon what's happening in the fourth quarter with pricing.

We have a number of contracts that will -- with customers that will go up and down with pricing anyway and adjust. So it's really hard to say.

So I don't think we are too far out of line right now, but certainly if there is a big step change from here either up or down, certainly that could impact us, especially going forward when you look into the first quarter of next year. It could be positive or negative..

Okay. And then, just one follow-up on the $3 million in cost savings you guys are on track to achieve this year.

How much of that did you get in the third quarter and how much is left?.

Sure. We don't kind of give -- we think we've achieved pretty much the level kind of where we are going to be at, at this point, and that's why we said the third and the fourth quarter will be kind of the same. We're getting close to those ultimate levels at this point.

We mentioned that we had about a $1 million hit in -- oh I said, another way of looking at is, as we said, we were about $3 million of savings in this year, we achieved a little bit in the second quarter, but really it kicked in the second half of the year. So you can kind of see it's probably in that $1 to $1.5 range at this point per quarter..

Okay, great. Thanks..

Thanks, Curt..

Thank you. Our next question is coming from Peter Warendorf of Wunderlich Securities. Please proceed with your question..

Good morning..

Michael Barry:.

.:.

So you guys talked about this for a second, but why were your revenues down in the Asia-Pacific, with China steel production ultimately growing in the third quarter of 2016?.

Overall, yes, it was relatively flat and it was really being driven by two things. So we actually have good volume growth. So our volume growth was 7%, but we have foreign exchange impacts. So, you could see what's happening with the R&D. And then there is also product pricing issues there you know, there has been some declines over there.

So they kind of offset the volume growth. So it was relatively flat overall..

Okay.

And then one follow-up question, when you are looking at the EPS reconciliation, what does the certain uncommon transaction-related expenses mean when you're talking about that?.

Those were expenses related to acquisitions that we had to spend on the quarter, and we non-GAAP these because we felt they were atypical in nature and they should have been non-GAAP to provide our shareholders with a better understanding of what's happening in our business. So it was really due to the nature of those type of expenses..

Thank you..

You are welcome..

Thank you. Our next question is coming from Laurence Alexander of Jefferies. Please proceed with your question..

Yes. Hi, this is Nick Cessaro [ph] on for Laurence. I just had a quick question, I was wondering if you guys could provide some color on auto and steel in the different regions..

Sure. Certainly from a steel perspective, we are seeing rebounding in crude steel production on a global basis, but when you really break it down, we saw in third quarter the declines in North America, Europe, and South America, but for the only place that really grew was Asia Pacific. And that was really being driven by both China and India.

So that's there. And in car production, overall car production is generally doing pretty well. We're starting to see weakness in the North America market. China continues to do very well. Europe is also at this point doing pretty well..

Up by 3%..

Yes..

Yes..

And hopefully we are hitting bottom, in South America we will start to see certain rebounds there, but certainly that's been continued negative for the auto market..

Thank you..

You're welcome..

Thank you. Our next question is coming from Jon Tanwanteng of CJS Securities. Please proceed with your questions..

Hi, guys. Thanks for taking my question..

Hey, Jon..

Good morning..

How are you doing? Given the transaction-related expenses that you called out can we assume that you guys are getting close to some sort of M&A? And if you could, give us some color on the pipeline and the environment..

Sure. I mean, normally as we kind of said in the past we really don't comment on acquisition until they're finalized.

And in most of these conference calls we will get a similar question, and we just feel that's the best way of handling it because at any point in time we have -- we're working on a number of potential acquisitions that could be in various stages. So, it's really hard to predict when and if any will be acquired.

So that's kind of the reason we don't comment on acquisitions until everything finalizes..

Okay, that's fine. And you mentioned that you had some products that didn't ship, maybe due to a timing issue.

Can you just talk about the magnitude of that and what caused it?.

Mainly in North America, and normally this is not a major issue for us.

Just to kind of give you some flavor of it, there is really actually some of it in our smaller businesses which we don't really talk about quite a bit like MR and Summit, and there we have unusual patterns of shipments in this quarter versus third quarter of last year and actually a lot of it was due to the third quarter of last year.

So the comparison and kind of math to go with happening and it was impacting in those two instances alone for example was impacting our sales in North America by about 3%. So that's why we felt we should mention softening around it..

Got you. That's helpful. Thank you.

And then, just from a high level, can you talk about what gives you the confidence that you're going to continue to gain share from your competitors? Are they just not keeping their eye on the ball or do you see that trend continuing?.

No. I think we'll continue to take share. I don't -- I have a lot of respect for our competitors but I think it's like I have mentioned it's kind of due to our business model. I think it's due to our emphasis that we're putting along different initiatives and certainly our new technologies that we're trying to grow globally around the world..

Do you have any additional questions? [Operator Instructions] Our next question is coming from Garo Norian of Palisade Capital Management. Please proceed with your question..

Hello. Hi, guys..

Good morning, Garo..

For the North America, just to understand the volume slippage, has that already been shipped now, since we are mostly through October?.

No.

You're talking about the timing of shipments, Garo?.

Yes, yes..

No. As I was kind of trying to explain a lot of it's been in the third quarter of last year, so when you're looking at the comparison between third quarter of this year and that, it was -- there was some unusual activity last year..

Okay, okay.

And then moving down to South America, which I know has gotten really, really small, but the improvement that you are seeing, put some context around it in the sense of how, after being beaten down for so many quarters, how optimistic can you be going forward for that region?.

Well, I think this is the first time we've actually seen some light at the end of the tunnel type of thing and we think it'll be a slow recovery so we don't think it will be any fast rebound in South America. We've been very fortunate.

We've been taking share down there and so as part of what we've seen in growth but we do see and things we've read through steel producers that as we start to get into 2017 they would expect to see some slow recovery in their economy.

So I think it'll continue to get better but I don't think it's going to be a dramatic improvement and certainly better from the continuing downward progression that we experienced over the past several years..

Sure.

Related to the product pricing that you talked about in Asia-Pacific, was that primarily due to raw material pass-through costs or is there something going on competitively?.

It could be due to two things, product mix and what's happening in our product as well as some adjustments in pricing as we go, you know, timing, lag adjustment type of things, but nothing -- I would say there is nothing unusual happening there..

Okay, okay.

And then, I would be remiss if I didn't ask about the progress on the aluminum side, particularly in China?.

Our trials are still progressing and doing well, and we hope to continue to be successful there, and become reference accounts for other pieces of business in the future..

Great. Thanks so much..

Thanks, Garo..

Thank you. At this time we are showing no additional questions in the queue.

Do you have any additional or closing comments?.

No, I just like to say thanks everybody for calling in today and your interest. We are pleased with the results for the third quarter, and we continue to be confident in the future of Quaker Chemical. Our next conference call for the fourth quarter and year end 2016 results will be in late February or early March of 2017.

And if you have any questions in the meantime, as always, please feel free to contact Mary or myself. Thanks again for your interest in Quaker Chemical..

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day..